Chapter 21
High inventory always means High de-commitment to customers
Many people think that only by having high inventory on hand can guarantee the On-time delivery to customers, and they will be quite nervous if you talk about inventory control to them because they think that the purpose for inventory control is just to cut inventory with one way and that will jeopardize the delivery to customers.
Is that true?
Usually we see “bad companies” always have more inventory even without cash flow to run the business but at the same time their customers are not happy with their delivery. Why?
- More inventory means worse processes management
We say that inventory is the output of total demand supply chain management processes. The more inventory you have, the worse your processes are working, that’s for sure. Actually Inventory Turn-over is a good performance indicator for plant operations which is including of demand & order management, planning, procurement, production and shop floor control, logistics etc. etc., because all those processes / activities are materials management related. Any of these processes is running bad, the final result will be turned into inventory pressure. So bad processes lead to high inventory and high inventory means processes are not performing well.
- More inventory is meaning your people are lazier
Somehow it is sensitive when talk about people but the thing is if you have more inventory, it is meaning that your people are always sleeping on inventory without initiatives to change or improve. Because usually more inventory means more safe, and this is the understanding of most of the people and then they are becoming lazier and lazier and they are losing sensitivity for de-commitment. The result will be, the more inventory you have, the more de-commitment to customers, which is a vicious circle for many companies as chart 21-1 shows.
Chart 21-1 vicious cycle on inventory control – people / process
- More inventory means worse relationship with partners
Usually if you have more inventory, your cash flow running will be in more difficult situation and the easies thing that your finance guys can do is just to on hold your payment to suppliers! And this will lead to worse cooperation from your suppliers in terms of pulling in / pushing out delivery etc., which is actually another vicious cycle for you as below chart 21-2.
Chart 21-2 vicious cycle on inventory control – cash flow perspective
From the analysis of above, we can see that more inventory always cause vicious cycles and from long term point of view, finally the customers will not trust us anymore and they even increase the forecast on purpose to get the so called delivery flexibility which will cause more and more extra inventory to us.
程晓华 《精益供应链管理－案例与运营》
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2009-06-14 09:42 程晓华 阅读(2470)
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